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* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA 234/2015
Reserved on: November 17, 2015
Date of decision: November 27, 2015
COMMISSIONER OF INCOME TAX -3 ..... Appellant
Through: Mr. Rohit Madan and Mr. Akash
Vajpai, Advocates.
versus
FIVE VISION PROMOTERS PVT.LTD. ..... Respondent
Through: Mr C.S. Aggarwal, Senior Advocate
with Mr Prakash Kumar, Mr Rupinder
Aggarwal and Mr Gautam Jain, Advocates,
With
+ ITA 235/2015
COMMISSIONER OF INCOME TAX -3 ..... Appellant
Through: Mr. Rohit Madan and Mr. Akash
Vajpai, Advocates.
versus
FIVE VISION PROMOTERS PVT.LTD. ..... Respondent
Through: Mr C.S. Aggarwal, Senior Advocate
with Mr Prakash Kumar, Mr Rupinder
Aggarwal and Mr Gautam Jain, Advocates,
and
+ ITA 236/2015
COMMISSIONER OF INCOME TAX -3 ..... Appellant
Through: Mr. Rohit Madan and Mr. Akash
Vajpai, Advocates.
ITA Nos. 234, 235 & 236/2015 Page 1 of 23
versus
FIVE VISION PROMOTERS PVT.LTD. ..... Respondent
Through: Mr C.S. Aggarwal, Senior Advocate
with Mr Prakash Kumar, Mr Rupinder
Aggarwal and Mr Gautam Jain, Advocates,
CORAM:
JUSTICE S. MURALIDHAR
JUSTICE VIBHU BAKHRU
JUDGMENT
% 27.11.2015
Dr. S. Muralidhar, J.
1. These are three appeals by the Appellant, Revenue, against the common
order dated 29th April 2014 passed by the Income Tax Appellate Tribunal
(`ITAT') in ITA Nos. 4545, 4246 and 4247/Del/2012 for the Assessment
Years (`AYs') 2007-08, 2008-09 and 2009-10 respectively.
Limitation
2. Considering that the impugned order is dated 29 th April 2014 and the
appeals were first listed for hearing nearly a year later on 10 th April 2015,
the question whether the appeals were in time was examined by the Court.
In para 8 of the memorandum of appeal in each of the appeals it is stated
that the impugned order was received by the Appellant, i.e. the
Commissioner of Income Tax, Delhi -3 (CIT-3) on 24th November 2014.
The affidavit in support of the appeal has been signed by Mr. Narendra
Prasad Sinha, posted as CIT -3.
3. Enclosed with the memorandum of appeal, is a copy of the certified
copy of the impugned order of ITAT which bears different date stamps.
ITA Nos. 234, 235 & 236/2015 Page 2 of 23
One of them is a date stamp of the CIT-3 dated 1st August 2014. Next to it,
is a noting of 5th August 2014 asking the matter to be put up for 'appeal
effect' urgently. However, also enclosed is a copy of a covering letter dated
24th November 2014 from the Income Tax Officer (ITO), Headquarters-8
(Judicial), New Delhi addressed to the CIT-III (Post restructured) drawing
the attention of the latter to the ITAT's order in the cases of the present
Respondent, Five Vision Promoters Pvt. Ltd. (`Five Vision').
4. By an order dated 9th October 2015 the Court required Mr. Kamal
Sawhney, learned Senior standing counsel for the Revenue, to produce the
certified copy of the order of the ITAT in original with the date stamp to
show when it was received by the CIT-3. On the next date, i.e. 17th
November 2015, Mr. Sawhney sought more time for that purpose. The
Court was not inclined to grant further time for that purpose and decided to
proceed on the basis of the documents already on record.
5. It appears from the covering letter dated 24th November 2014 of the ITO
(Judicial) that cases concerning Five Vision were under the jurisdiction of
the ACIT/DCIT, Circle-9 (1) [Pre restructured Cir.11 (1)]. The letter stated
that it was not known whether a copy of the consolidated order of ITAT
had been forwarded to the concerned CIT. Therefore, a letter was again
being written to the CIT-III (Post restructured). However, as noticed earlier
CIT-III had already received a copy of the order on 1 st August 2014 itself.
In any event, going by the earliest of the date stamps on the certified copy
of the impugned order of the ITAT, it is seen that it was first received by
the CIT (Judicial) on 10th June 2014. That should normally be taken to be
the date of commencement of limitation for the purposes of Section 260A
(2) (a) of the Act. On that basis, the appeal filed on 19 th March 2015, with
ITA Nos. 234, 235 & 236/2015 Page 3 of 23
the supporting affidavit attested on 31st March 2015 would be beyond the
stipulated limitation period of 120 days in terms of Section 260A (2) (a) of
the Act. There is, however, no application for condonation of delay and the
appeals have been numbered and listed by the Registry as if they were
within limitation.
6. Faced with the above difficulty, Mr. Sawhney, learned Senior standing
counsel for the Revenue, volunteered to file a separate application for
condonation of delay. However, at that stage Mr. C.S. Aggarwal, learned
Senior counsel appearing for the Assessee, Five Vision, made a statement
that the Assessee was not pressing the objection as to the delay in filing the
appeals. In that view of the matter, the Court proceeds with the merits of
the appeals. However, the Registry is directed to hereafter examine
carefully the date stamp on the certified copy of the order of the ITAT and
insist on the original being produced in order to satisfy itself of the
correctness of the statement made in the memorandum of appeal regarding
the date of receipt of the certified copy of the ITAT's order.
Question urged
7. The Revenue has in these appeals sought to urge the following question
for consideration:
"Whether the ITAT erred in deleting the addition made under
Section 68 of the Act of share application money by holding that
the identity and genuineness of the share applicants was
established?"
Background facts
8. The background to filing of these appeals is that the Assessee, Five
Vision, is a company incorporated under the Companies Act, 1956 on 14 th
ITA Nos. 234, 235 & 236/2015 Page 4 of 23
January 2005 with the object of running a shopping mall. The business of
the Assessee had not commenced till 31st March 2009 because the Mall
was under construction.
9. The genesis of the present proceedings is a search which commenced on
14th October 2008 in the premises of SVP Builders India Limited (`SVP
Builders') and the SVP Group of Companies. Four companies were said to
comprise the core of the SVP Group, of which the fourth was Five Vision.
The other three are SVP Builders, SV Liquor (India) Ltd. and SVP
Developers Ltd. These four companies were found to have received share
capital from 106 companies between AYs 2003-04 to 2009-10. The said
shareholders have been categorised Table-I, II and III shareholders. Table-I
shareholders, which were 20 companies, were subjected to search under
Section 132 of the Act. Table-II shareholders, comprised 12 companies
against whom the proceedings were initiated under Section 153C of the
Act consequent upon the search. Table-III shareholders, comprised 74
companies whose identity and existence were not doubted since they were
being regularly assessed to tax.
10. The case of the Revenue is that SVP Group of companies (in whose
premises, and the residential premises of their Directors, searches were
conducted) were engaged in the business of construction of residential,
commercial and business complexes and also sale/purchase of lands. The
further case of the Revenue was that the Group had been charging `on -
money' on the sale of flats, shops etc. which was not accounted for in their
regular books of accounts. The allegation was that `on -money' was taken
in cash and in turn was routed back into the Group companies in the form
of share application/unsecured loans, share capital etc. The unaccounted
ITA Nos. 234, 235 & 236/2015 Page 5 of 23
money routed through the said channel was reinvested in the purchase of
further lands and for new projects. The share application money received
in cash was also utilized for booking bogus expenses as site development
charges for inflating the cost of construction to bring down profits. Among
the SVP Group of companies, which are stated to have constituted the core
group, is the Assessee, Five Vision.
11. The further case of the Revenue was that during the pre-search
enquiries it was gathered that SVP Group of companies had been receiving
share capital from several companies which did not undertake any genuine
business activities but acted as 'conduit channels' for converting black
money into white. The broad general allegation was that in the course of
the investigation undertaken by the Additional Director of Income Tax
(Investigation), Ghaziabad, the SVP Group of companies did not produce
the shareholders despite being served with notices for that purpose. It was
alleged that the shareholders were not produced till finalization of
assessment order, i.e., upto 21 months thereafter.
12. As far as the present Assessee, Five Vision, is concerned, it filed its
return of income for AY 2007-08 on 2nd November 2007. For AY 2007-08,
the amount contributed by the corporate shareholders to the share capital of
Five Vision aggregated to Rs. 4,56,47,500. The extent of investment in the
share capital of Five Vision by these three categories of shareholders for
AY 2007-08 was as under:
(i) Table ­ I (14 companies): Rs. 1.33 crores
(ii) Table ­ II (9 companies) Rs. 87 lakhs
(iii) Table ­ III (15 companies) Rs. 2.36 crores
ITA Nos. 234, 235 & 236/2015 Page 6 of 23
13. The Assessee filed it return of income for AY 2008-09 on 6th October
2008 and for AY 2009-10 on 26th September 2009. As far as AYs 2008-09
and 2009-10 are concerned, the total contribution to the equity share
capital of Five Vision aggregated to Rs. 2 crores and Rs. 4.55 crores
respectively. The said contribution was entirely from Table-III category
shareholders.
14. Consequent upon the search that took place on the SVP Group of
companies on 14th October 2008, notices were sent to Five Vision on 14th
May 2010 under Section 153C of the Act for AYs 2007-08, 2008-09 and
under Section 271F of the Act for AY 2009-10. In response to the above
notices, the Assessee filed its return of income for AYs 2007-08 and 2008-
09 on 4th June 2010. It replied on the same date to the notice under Section
271F stating that it had already filed a return for AY 2009-10 on 29th
September 2009. It enclosed to the reply a hard copy of the said return.
Thereafter, notices were again sent to the Assessee by the Assessing
Officer (`AO') on 15th September 2010 under Section 143 (2) of the Act.
The jurisdiction of the case was shifted from Meerut to Ghaziabad on 13th
October 2010. Again notices under Section 142 (1) of Act were issued to
the Assessee for the AYs in question by the ACIT, Central Circle,
Ghaziabad on 25th October 2010. For AY 2007-08, a further notice under
Section 142 (1) was issued on 22nd November 2010 and for AYs 2008-09
and 2009-10 on 2nd December 2010.
15. As already noted, there were 20 companies belonging to Table-I. As
far as Five Vision is concerned, the case of the Revenue was that 14 of
these Table-I companies were its shareholders during AY 2007-08,
contributing an aggregate of Rs. 1.33 crores. As far as Table-II is
ITA Nos. 234, 235 & 236/2015 Page 7 of 23
concerned, of the 12 companies therein, 9 were shareholders of Five
Vision during 2007-08 contributing in the aggregate Rs. 87 lakhs. These
are companies against whom information was gathered during the course
of search although these companies themselves were not searched. Of the
74 companies in Table-III, 15 were stated to have contributed in the
aggregate Rs. 2,36,47,500 to the share capital of Five Vision during the
AY 2007-08.
16. As far as AY 2008-09 was concerned, four of the Table-III companies
contributed Rs. 2 crores to the share capital of Five Vision. As far as AY
2009-10 was concerned, 20 of the Table-III companies contributed an
aggregate of Rs. 4.55 crores to its share capital. None of the companies in
Tables I and II contributed to the share capital of Five Vision for AYs
2008-09 and 2009-10.
Assessment order
17. The assessment order was passed on 30th December 2010 by the AO
holding that the above investments were not genuine. He held that:
(i) As far as the Table I shareholders were concerned, the AO noted that
none of the companies were found to be operating at the given addresses.
There was neither any display board for name of these companies nor
their books of accounts or related accounts or documents were found
from such premises.
(ii) Moreover, even the persons available at the said premises namely Shri
Bajrang Bahadur Dubey, Smt. Meena Goyal, Smt. Sushila Goyal and Shri
Sachin Garg denied that any of the said companies existed at the said
ITA Nos. 234, 235 & 236/2015 Page 8 of 23
addresses. Further, despite letter dated 5th March 2009, and summons
under Section 131 dated 20th March and 6th April 2009, the Assessee
failed to produce the shareholders for cross examination.
(iii) As far as the Table III companies were concerned, many of the
summons issued were returned unserved with the remarks "unknown" or
"no such person". 24 of the companies submitted replies and some filed
affidavits but did not submit any other details. The letter of M/s. Ganesh
Buildtech showed that it had invested Rs. 10.50 crores in 16 of the
companies in figuring in Tables III and they in turn invested in the SVP
Group companies. This was proof of the said companies acting as a
"conduit channel". Further, the Assessee failed to produce the
shareholders for cross-examination.
(iv) Also, the nexus of the shareholders and the beneficiary, i.e. the SVP
Group stood proved from the fact that shares were bought back by the
individuals/concerns belonging to SVP Group. During the search, original
share certificate worth Rs. 38 crores were found out of which some were
seized. During the search one Shri Vijay Jindal gave a statement that the
shares were allotted at Rs. 10 per share and later on bought back at Rs.2-
3/- per share. The actual average purchase price was Rs. 1.04 per share.
Thus shares that were initially issued by the SVP Group to the extent of
Rs. 81.19 crores had been cheaply bought back for Rs. 10.38 crores and
therefore the transactions were sham.
(v) Thus the Assessee had failed to prove the identity, genuineness and
creditworthiness of the said shareholders. Accordingly, the
ITA Nos. 234, 235 & 236/2015 Page 9 of 23
aforementioned sums shown as investments in its shares for the AYs in
question were added to its income for those AYs.
Proceedings before the CIT (A)
18. Aggrieved by the aforementioned assessment orders, the Assessee,
Five Vision filed appeals before the Commissioner of Income Tax
(Appeals) [`CIT (A)']. The Assessee furnished some more documents on
which remand report was called for by the CIT (A) from the AO. The
remand report was submitted by the AO on 11 th November 2011. A
rejoinder and recapitulation note was submitted before the CIT (A) on 8th
December 2011. A reply dated 21st December 2011 was also filed by the
Assessee on the questions raised by the CIT (A) on 8th December 2011.
Further responses were submitted on 7th and 10th February 2012 for
questions raised on 3rd and 8th February 2012 respectively.
19. The CIT (A) issued common directions in all the cases on 10th
February 2012 directing the shareholders of SVP Group of companies to
be produced before the AO. The remand report was submitted by the AO
on 24th February 2012. A rejoinder was filed to the said report on 5th March
2012.
20. By an order dated 31st May 2012, the CIT (A) upheld the additions
made by the AO. Against the said order of the CIT (A), the Assessee, Five
Vision, filed appeals before the ITAT.
Impugned order of the ITAT
21. By the impugned order dated 29th April 2014, the ITAT deleted the
additions made under Section 68 of the Act by holding that:
ITA Nos. 234, 235 & 236/2015 Page 10 of 23
(i) The Revenue had been unable to deny the factual position that only 11
of the 20 companies in Table I had actually been searched. The material on
record showed that directors of 18 companies of the 20 companies were
examined by the AO in the course of the remand proceedings and found
from the books of accounts that the share capital stands duly recorded in
their books of accounts. Thus there was no justification for drawing an
adverse inference particularly since no contrary material was placed on
record by the revenue.
(ii) The statements of Shri Bajrang Dubey and Shri Sachin Garg when
carefully examined did not show that the investor companies did not exist
or did not in fact subscribe to the share capital of the SVP Group
companies.
(iii) As far as Ganesh Buildtech was concerned, while no addition was
made by the AO of the sum of Rs. 28 lakhs invested by it in Five Vision
for AY 2006-07 and Rs. 1,57,27,500 in AY 2007-08, he added the sum of
Rs. 1,74,75,000 received from it in AY 2007-08. This apparent
contradiction showed that the addition was made without appreciating the
complete facts on record.
(iv) The decision of this Court in M/s. Nova Promoters and Finlease (P)
Ltd. 342 ITR 169 (Del) was distinguishable on facts since in that case two
directors of the shareholder companies admitted to maintaining benami
accounts and providing accommodation entries, whereas in the present
cases there were no such statements. Also, here the AO did not take any
steps to rebut the confirmation and evidence tendered by the shareholders.
ITA Nos. 234, 235 & 236/2015 Page 11 of 23
(v) The common address of shareholders was not a valid basis to disregard
the claim of the Assessee in view of the decision of this Court in CIT v.
Winstral-Petrochemicals Pvt. Ltd. 330 ITR 603 (Del).
(vi) The subsequent sale of the shares subscribed was not germane to the
question of the genuineness of the share capital amount received by the
Assessees. Once the capital raised stood explained, the issue of
disinvestment by the shareholder subsequently was a non-issue. The
addition if at all was to be examined in the hands of the person purchasing
the shares.
(vii) There was no material to support the Revenue's case that the 'on-
money' collected in cash was routed back into the SVP Group companies
in the form of share application and later reinvested in purchase of further
lands for new projects.
(viii) There was no material to conclude that some of the investors were
'paper' companies. They had been regularly assessed to tax and had
produced their books of accounts during their respective assessment
proceedings to show that they had made the investment in question. This
had been accepted by the CIT (A) in their assessments by deleting the
additions made of the said sums to their income by the AO concerned by
holding that the additions if at all should be made in the hands of the
beneficiaries. In the appeals filed in those cases, the Revenue had
contended that the additions ought to have been sustained. Thus, the stand
of the Revenue was contradictory and untenable.
ITA Nos. 234, 235 & 236/2015 Page 12 of 23
(ix) The Assessee had discharged primary onus of proving the the identity,
genuineness and creditworthiness of the said shareholders.
Submissions of counsel
22. Mr. Rohit Madan, learned counsel for the Revenue reiterated the
grounds of appeal. He first submitted that the CIT (A) had found that the
Assessee had manipulated substantial fund movement through `paper
existence' of the investor companies. Secondly, the CIT (A) found that the
common directors repetitively appeared in the list of directors of the
companies which clearly indicated that they belonged to the same group,
and were manipulating their books for the purpose of introduction of
unexplained cash money and creating 5-6 steps of cheque transactions
before the investment was made eventually in SVP group of companies.
Thirdly, the CIT (A) checked the creditworthiness of three shareholding
companies, viz., (i) Quality Security Services Pvt. Ltd. (b) United Head
Hunters Pvt. Ltd. and (iii) Wellset Pharma & Drugs Pvt. Ltd. and found
that these companies did not have any worthwhile share capital and their
activities were only in the form of management of fund rotation in the garb
of share application money invested in each other. Such rotation was with
a view to artificially inflate their credit worthiness. Fourthly, the AO had
found that the Assessee bought back its own shares at a very low price.
The share allotted at the face value of Rs. 10 were transferred in the names
of individuals/ concerns belonging to SVP group at a meagre price ranging
from Rs. 0.50 to Rs. 2 per share. Fifthly, the persons available at the
premises during search of the Table I companies denied the existence of
such companies at that place. The Assessee had received huge amounts of
money of Rs. 11 crores in cash in the form of share application money,
which was not explained. Lastly, it was submitted that the decision in M/s.
ITA Nos. 234, 235 & 236/2015 Page 13 of 23
Nova Promoters and Finlease (P) Ltd. (supra) was wrongly distinguished
by the ITAT in its application to the facts of the present case.
23. Mr. C.S. Aggarwal, learned Senior counsel for the Assessee, filed the
entire record of the case submitted before the AO, CIT (A) and the ITAT
and urged that no substantial question of law arises since the findings of
the ITAT were purely factual and consistent with the well settled law
explained by the Supreme Court and the High Courts in several decisions
concerning Section 68 of the Act. Mr. Aggarwal pointed out that as regards
the 38 shareholders who contributed share capital for AY 2007-08, a sum
of Rs. 4,56,47,500, 14 belonged to Table-I, 9 to Table-II and 15 to Table-
III. Evidence in respect of each of the 14 Table I companies was filed by
the Assessee. This included, inter alia
(i) copy of share application forms;
(ii) copy of board resolution;
(iii) copy of allotment letter confirming the allotment;
(iv) confirmation in affidavit by the investor
(v) copy of share certificate evidencing the allotment of shares;
(vi) copy of income tax return (`ITR') for the relevant AY;
(vii) the relevant extracts of the copy of bank book; and
(viii) copy of the letter with enclosures filed by the investor
company addressed to AO in response to summons issued under
Section 131 of the Act making direct enquiries.
24. Mr. Aggarwal pointed out that similar details were provided for 9
corporate shareholders belonging to Table-II who invested in Five Vision
for AY 2007-08 and in respect of 15 corporate shareholders belonging to
Table-III who invested in the same AY, i.e., 2007-08.
25. Mr. Aggarwal drew the attention of the Court to the fact that the
following details were furnished in respect of the four corporate
ITA Nos. 234, 235 & 236/2015 Page 14 of 23
shareholders which contributed a sum of Rs. 2 crores for the share capital
of Five Vision for AY 2008-09:
(a) copy of certificate of incorporation/MOA;
(b) copy of ITR filed for relevant AY;
(c) copy of share application forms;
(d) copy of board resolutions;
(e) copy of bank statement (relevant extracts);
(f) copy of confirmation;
(g) confirmation in the affidavit by the investor
(h) copy of the letter with enclosures submitted by the investor
companies in response to the summons under Section 131 o the
Act.
26. As regards 18 shareholders who contributed Rs. 4.55 crores to the
share capital for AY 2009-10, all the aforesaid documents were filed by the
Assessee. The said documents were also placed before this Court. Mr.
Aggarwal submitted that the Assessee had therefore, discharged its initial
onus on the identity, creditworthiness and genuineness of the transactions.
He submitted that the ITAT had itself recorded the fact that the AO had
issued summons under Section 131 of the Act which had been duly
complied with and then the shareholders independently confirmed having
subscribed to the share capital in Five Vision.
27. Reliance was placed by Mr. Aggarwal on the decision of the Supreme
Court in CIT v. Lovely Exports (P) Ltd. 216 CTR 195 (SC), CIT v. Divine
Leasing and Finance Ltd. (decision dated 21st January 2008 of the
Supreme Court in Special Leave to Appeal (Civil) (CC) 375 of 2008) and
decision dated 17th September 2012 of the Supreme Court in CIT v.
Kamdhenu Steel & Alloys Limited [SLP (Civil) CC 15640 of 2012)]. In all
the above three decisions the Supreme Court had affirmed the
corresponding decisions of this Court including CIT v. Divine Leasing and
Finance Ltd. 299 ITR 268. Reliance was also placed on the decision of
ITA Nos. 234, 235 & 236/2015 Page 15 of 23
this Court in (1994) CIT v. Sophia Finance Ltd. (1994)205 ITR 98 (FB)
(Del).
Law concerning Section 68 of the Act
28. Before proceeding to discuss the above submissions, a brief
recapitulation of the legal position as regards Section 68 of the Act is
necessary. Under Section 68 of the Act, the AO has jurisdiction to
undertake enquiries with regard to the amount credited in the books of the
accounts of an Assessee. This could be any sum whether in the form of
sale proceeds or receipt of share capital money. First, the AO is to enquire
whether the alleged shareholders in fact exist or not. The truthfulness of
the assertion by the Assessee regarding the nature and the source of the
credit in its books of accounts can be examined by the AO. Where the
identity of the shareholders stands established and it is shown that they had
in fact invested money in the purchase of the Assessee's shares, then the
amount received would be regarded as capital. Where the Assessee offers
no explanation at all or the explanation offered is unsatisfactory, the
provision of Section 68 may be invoked.
29. A Full Bench of this Court in CIT v. Sophia Finance Limited (supra)
held in the context of Section 68 of the Act that:
(i) The Assessee has to prima facie prove "(1) the identity of the
creditor/subscriber; (2) the genuineness of the transaction, namely,
whether it has been transmitted through banking or other indisputable
channels; (3) the creditworthiness or financial strength of the
creditor/subscriber".
(ii) If the relevant details of the address of PAN identity of the
ITA Nos. 234, 235 & 236/2015 Page 16 of 23
creditor/subscriber are furnished to the Department along with copies of
the Shareholders Register, Share Application Forms, Share Transfer
Register etc., it would constitute acceptable proof or acceptable
explanation by the Assessee.
(iii) The Department would not be justified in drawing an adverse
inference only because the creditor/subscriber fails or neglects to respond
to its notices.
(iv) The onus would not stand discharged if the creditor/subscriber denies
or repudiates the transaction set up by the Assessee nor should the AO
take such repudiation at face value and construe it, without more, against
the Assessee.
(v) The AO is duty-bound to investigate the creditworthiness of the
creditor/subscriber the genuineness of the transaction and veracity of the
repudiation.
30. In the decision CIT v. Divine Leasing and Finance Ltd. (supra), this
Court held that if the Assessee had furnished relevant details of the
subscribers and the shares were allotted as per the prevalent norms of the
Stock Exchange, no addition could be made on account of unexplained
cash credits. Where the Assessee had provided the relevant details it had
discharged its onus and then it is for the Revenue to show that the
subscribers were benamidars or any part of the share capital represented
the Assessee's own income from undisclosed sources. In CIT v. Divine
Leasing and Finance Ltd. (supra), the Supreme Court while affirming the
order of this Court observed that "if the share application money is
received by the Assessee company from bogus shareholders, whose names
ITA Nos. 234, 235 & 236/2015 Page 17 of 23
are given to the AO, then the Department is free to proceed to re-open their
individual assessments in accordance with law."
31. Likewise in CIT v. Dolphin Canpack Ltd. 283 ITR 190 the Court held
no substantial question of law arose since the ITAT found that the
Assessee had disclosed to the AO during the course of enquiry "not only
the names and the particulars of the subscribers of the shares but also their
bank accounts and the permanent account numbers issued by the income
tax department. Superadded to all this was the fact that the amount
received by the company was all by way of cheques."
32. The law was reiterated in CIT v. Kamdhenu Steel & Alloys Ltd. 206
Taxman 254. The Assessee there had given particulars of registration of
the investing companies; confirmation from share applicants, their bank
account details; and had shown payment through account payee cheques
etc. In the circumstances, it was held that it could be said that the Assessee
had discharged its initial onus and just because some of creditors/share
applicants could not be found at the addresses given," would not give
Revenue a right to invoke Section 68 without any additional material to
support such a move." It was held likewise in Sarthak Securities Co. (P)
Ltd. v. ITO 329 ITR 110.
33. In CIT v. Nipun Builders and Developers (2013) 350 ITR 407 (Del) it
was held that the point at which the initial onus on the Assessee to prove
the unexplained credit would stand discharged depends upon the facts and
circumstances of each case. It was observed:
"Circumstances might require that there should be some evidence
of positive nature to show that the said subscribers had made a
genuine investment, acted as angel investors, after due diligence or
ITA Nos. 234, 235 & 236/2015 Page 18 of 23
for personal reasons. Thus, finding or a conclusion must be
practicable, pragmatic and might in a given case take into account
that the Assessee might find it difficult to unimpeachably establish
creditworthiness of the shareholders."
34. In Commissioner of Income Tax v. N.R. Portfolio Pvt. Ltd. (2014) 206
DLT 97 (DB) the Court reiterated the need of the Assessee to satisfy the
AO about the "identity, creditworthiness and genuineness" of the creditors.
It was observed that the
"mere production of incorporation details, PAN Nos. or the fact
that third persons or company had filed income tax details in case
of a private limited company may not be sufficient when
surrounding and attending facts predicate a cover up. These facts
indicate and reflect proper paper work or documentation but
genuineness, creditworthiness, identity are deeper and obtrusive."
35. Recently in Jet Lite (India) Ltd. v. CIT (decision dated 4th November
2015 in ITA No. 204 of 2002), this Court examined the entire case law and
reiterated the settled legal position.
Reasons and decision
36. In the present case, there is a basic fallacy in the submission of the
Revenue about the precise role of the Assessee, Five Vision. The broad
sweeping allegation made is that "the Assessee being a developer is
charging on money which is taken in cash". This, however, does not apply
to the Assessee which appears to be involved in the construction of a
shopping mall. In fact for the AYs in question, the Assessee had not
commenced any business. The construction of the mall was not yet
complete during the AYs in question. The profit and loss account of the
Assessee for all the three AYs, which has been placed on record, shows
that only revenue received was interest on the deposits with the bank. The
ITA Nos. 234, 235 & 236/2015 Page 19 of 23
Assessee is, therefore, right in the contention that the basic presumption of
the Revenue as far as the Assessee is concerned has no legs to stand.
Correspondingly, the further allegation that such `on money' was routed
back to the mainstream in the form of capital has also to fail.
37. The other submission that the Assessee was itself being used as a
conduit for routing the `on money' or that the investment in the Assessee
was also for routing such 'on money' has not even prima facie been able to
be established by the Revenue. On the one hand there is an attempt to treat
the cash credit found in the Assessee's books of accounts to be
`undisclosed income of the Assessee' by showing the investors to be 'paper
companies'. On the other hand, the attempt is to show that this money in
fact belongs to certain other entities whose source has not been explained
by the Assessee. As noted by the ITAT in the assessment proceedings of
the investor companies, the monies invested were sought to be added as
income of those companies by the AOs. The said additions were deleted by
the CIT (A) in their cases holding that the additions if at all should be
made in the hands of the beneficiaries. The Revenue then filed appeals in
the ITAT insisting on the additions being sustained. Thus there is no clarity
in the stand of the Revenue in these cases.
38. Coming to the core issue concerning the identity, creditworthiness and
genuineness of the investor companies, it is seen that as far as the Table I
investors were concerned, only 9 were searched and in their cases, the
ITAT on a very detailed examination was satisfied that they not only
existed, but that the Assessee had discharged the primary onus of proving
their creditworthiness and genuineness. They had responded to the
ITA Nos. 234, 235 & 236/2015 Page 20 of 23
summons issued to them. Directors of 14 of these companies appeared
before the AO and produced their books of accounts.
39. In respect of four of the Table II companies, who invested Rs. 2 crores
in the share capital of the Assessee for the AY 2008-09, the CIT (A)
observed: "I have carefully appreciated the contentions and do admit that
at least these few companies do not seem to be having connection with the
majority of the 'conduit' companies and their common directors and that
their financial credit worthiness is on much better footing."
40. As regards Table-III companies, notices were issued under Section 131
of the Act to which many of them responded confirming having made
investments. The Assessee had been asked by the CIT (A) to produce 7
directors of the Table III companies. 6 directors appeared and their
statements were recorded. They had confirmed that they had subscribed to
the share capital of the Assessee. These directors had not only produced
the books of accounts but showed that the source of investment was duly
recorded therein. The Revenue on the other hand did not produce any
further evidence to dispute the above evidence produced by the Assessee.
As far as Table II shareholders were concerned, if the Revenue was of the
view that they were simply using the Assessee for parking their
undisclosed income, then it was certainly open to the Revenue to make
additions to the income of those Table-II companies. As far as Table-I
shareholders was concerned, none of them denied having made the
investment in the Assessee company. The AO does not appear to have
undertaken any particular investigation into the affairs of the Table-I, II or
Table III companies apart from issuance of the notices under Section 131
of the Act which were duly responded to.
ITA Nos. 234, 235 & 236/2015 Page 21 of 23
41. Detailed findings have been given by the ITAT in the present cases
after a thorough examination of the records. These have been extracted
hereinabove. The Court finds no reason to differ from the decision of the
ITAT in its rejection of the very same contentions urged before the Court
by the Revenue. In particular, the Court concurs with the ITAT that the
mere fact that some of the investors have a common address is not a valid
basis to doubt their identity or genuineness.
42. Also, the fact that the shares of the Assessee were subsequently sold at
a reduced price is indeed not germane to the question of the genuineness of
the investment in the share capital of the Assessee. The question of
avoidance of tax thereby may have to be examined in the hands of the
person purchasing the shares.
43. Some of the investor companies for e.g., Quality Security Services Pvt.
Ltd. (b) United Head Hunters Pvt. Ltd. and (iii) Wellset Pharma & Drugs
Pvt. Ltd. have been shown to be filing returns and being assessed on a
regular basis. Some of them have been shown to be in existence even
before the incorporation of the Assessee. Indeed the Revenue was unable
to produce material to substantiate its case that the genuineness and
creditworthiness of the investors and the source of the money received by
the Assessee by way of investments in the AYs in question was not
satisfactorily explained by the Assessee. Also, the ITAT rightly
distinguished the decision in M/s. Nova Promoters and Finlease (P) Ltd.
(supra) in its application to the facts of the present case.
ITA Nos. 234, 235 & 236/2015 Page 22 of 23
Conclusion
44. The Revenue has not been able to show that there is any legal
infirmity in the impugned order of the ITAT as regards the analysis of the
facts or the application of the law in relation to Section 68 of the Act.
45. Consequently, no substantial question of law arises for determination.
46. The appeals are dismissed but in the circumstances, with no orders as
to costs.
S. MURALIDHAR, J
VIBHU BAKHRU, J
NOVEMBER 27, 2015
Rk
ITA Nos. 234, 235 & 236/2015 Page 23 of 23